Dealing with the pain in Spain

How is the SME sector holding-up under the Covid-19 crisis in Europe, and Spain in particular? Ashley Balls filed this report from his Salamanca lockdown.

Let me start by saying things are not good here in Spain in terms of the numbers of cases and victims. As of midday today (March 23^rd) there are 33,089 contagious and 2182 dead. The growth in cases is following an almost identical path to many other countries and New Zealand is on the same trajectory.

I personally have only two degrees of separation from one of the dead – a friend of a friend of ours died locally last Thursday.

Spain is now in its second week of lockdown and in New Zealand terms we are at stage 4. Further restrictions were imposed on Saturday – when the closure of all non-essential businesses was ordered. In Spain, like the rest of the EU there are reasonably good employee protections for those made unemployed or laid off by this event and they go straight onto unemployment or sick-pay, which is not that generous but slightly more than in the UK where the cost of living is a lot higher.

Those with mortgages are protected and utility and rates bills are being picked up by the state – for now. Homeless people are being taken to shelters which are basic but they are fed and there are toilets/showers and laundry facilities.

The changes have not been that straightforward in Spain as the country is divided into 19 ‘autonomias’ or regions, each of which has its own parliament – a bit like Australia. The invoking of a State of Emergency made the administration easier as it is now centralised with national not regional policies. This required some clever and rapid politicking as aid will still be distributed by the 19 regions and they have the capacity to frustrate national efforts and ‘play’ politics. So far so good on that front, Central government has set up a small committee with each member having a distinct responsibility and delegated authority. Under the Spanish Constitution the state of emergency has to be reviewed by Congress (parliament) every 15 days which ensures transparency and optimum performance. One committee member and vice president dropped out today and has been admitted to hospital with the virus. The President’s wife and one other minister are also victims along with a small number of MPs.

The requirement for additional hospital beds is crucial despite Spain having many more per 100,000 than the UK to begin with. All private hospitals and the entire medical supplies and drug supply chain is now under state control to ensure no price gouging. In addition, all army field hospitals have been deployed in the grounds of existing hospitals. New hospitals have been created, like China, almost overnight. One in Valencia will have 1,100 beds and will be completed in the next three days. Another in Madrid will have 5,500 beds and is being constructed by the army engineers and contractors inside a very large exhibition centre. It was completed this weekend and already has more than 200 patients, reception facilities, a full ICU and staff rest areas. Testing facilities have been ramped up dramatically and half a million testing kits arrived from China at the weekend and local manufacturers have developed and produced a process that can carry out 175,000 tests a day with results in 15 to 20 minutes.

Spanish ingenuity

Not many SMEs have been involved in the above other than contractors/construction specialists familiar with healthcare requirements for plumbing, power/lighting, fitting out ICUs and the like.

There has, however, been a virtual overnight transformation of the health supplies sector and it involves universities, contractors, furniture makers, textile suppliers, clothing manufacturers, IT workers and 3D printing operators. One element that has impressed me is the way these disparate groups have set up collaborative operations – virtually overnight.

New Zealand can no longer lay claim to the phrase ‘Kiwi Ingenuity’ – the Spanish are every bit as flexible, responsive – and quick.

The 3D printing people would appear to have made contact with each other either through clubs, trade groups or online hubs and literally over the weekend have managed to reverse engineer and start making the components for respirators – the first domestically produced versions will be ready in two weeks. As the government now controls the entire health supply chain no one is concerned about intellectual property factors as human need is more important than corporate greed in a market where no mainstream medical supplier can deliver large quantities before the middle of the year anyway. Dealing with any legal issues can wait.

However, I note that in Italy where similar efforts are underway two engineers are in trouble for 3D printing the valve components of a respirator for $1 when the supplier charges $13,000 – that is not a misprint. If one thing comes out of this debacle it is that the price of goods supplied to state/publicly owned businesses and services providers will be exposed to transparency and I expect major and permanent price drops. There seems to be a worldwide culture that when supplying to government, pricing is based on thinking of a figure and then multiplying it by 3 or 4!

Spain has an extensive car industry – bigger than the UK – and is a major supplier of components across the EU – based on good national light engineering and production skills. This sector is now turning out hospital beds from scratch – in days.

Strategic reserves

One overarching element has come from this pandemic crisis, which may not be the last – the pressing need to have strategic reserves of basic medical protective equipment has never been higher. Whether it is protective masks by the million, clear plastic face protectors, gowns, blankets, sheets, gloves, all-over protective ‘goon’ suits, eye protectors, boots, the government has said there must now be a large strategic reserve set up and managed. It must contain literally millions of each essential product. Furthermore, government have said, Spain must have independent, domestic supplies of all.

To some extent this is happening already with small footwear manufacturers cooperating to make surgical boots – after all, with shoe shops closed this is a basic survival response. There was once a very large manufacturing sector for both textiles and clothes – much of it highly dispersed and small but often working together to supply single customers. When Inditex/Zara first set up in Galicia (Northwest Spain) all manufacturing was domestic – almost all has since gone to Vietnam, China, Burma, etc. However, the skills are still here and some of the legacy of that is now producing face masks, gowns and a whole range of textile based components.

Given the consumption of these products by the health service is enormous (as face masks are changed several times a day) and the need to build up a large strategic reserve, this new industry is set to have a rosy future once more.

Job losses

Overall job losses in Spain are likely to be in the millions as the largest business sector by income here is tourism and it is closed. All hotels, beaches, parks, national parks, monuments and museums are closed and likely to remain so for months. There are 2.65 million employed in the tourism sector and they are all laid off, other than a handful doing essential maintenance. Add in the job losses in engineering, automotive, aviation, financial services and other sectors and there will be 4 to 5 million more job losses. That is lot of mouths to feed and they will be fed, as people/jobs are the priority.

At a local level we have seen the university combine with local industry to make special protective panels for the health sector – the first batch are to be delivered today. The university has also combined with other very small specialist businesses to make components for respirators and again the first batches will be completed in April. Local furniture companies who have zero chance of selling furniture are using their textile skills to convert stock material into gowns and surgical masks. Closed restaurants are providing ready-meals for staff and patients of care homes – who have been particularly hard hit by the virus. In turn this has provided work for delivery van owners and drivers.

As some virus patients do not require hospitalisation when they get the all-clear their homes require specialist cleaning – more work for small local companies which have lost their office cleaning contracts. Specialist cleaning of healthcare and eldercare facilities is currently being carried out by UME, a national rescue force and part of the army. It is inevitable they will need civilian assistance as the crisis grows and they will hire/train local cleaning companies.

All these businesses require a steady stream of cleansers, disinfectants, hand sanitisers and more. Demand for gelatine has gone through the roof to make hand sanitiser which typically is 70% alcohol, 29% gelatine and 1% fragrance. Local distilleries making specialist spirits are now making neat alcohol for the cleaning companies to meet extraordinary demands.

Spain is a major food exporter and demand has increased to meet panic buying overseas (there is very little here). I was in our local supermarket mid-morning on Friday last week and every shelf was stocked.

The hardest hit industries are tourism, aviation, automotive and construction – all of which have effectively been turned off. But resourcefulness and demand for domestically produced products has produced some new and sustainable jobs.

It’s hard to get numbers and on balance the overall numbers will not replace the temporary job losses from closures, but it is not doom and gloom. Essential work includes some construction (for safety reasons) plumbing/gas fitting, electricians, lift engineers (the Spanish are nation of flat dwellers) postal and telecommunications, TV & radio broadcasting, education (which is continuing online) and public utilities.

Home working in Spain is easier than in many places as the Internet is arguably the best in Europe. Only Germany, with nearly double Spain’s population has more Internet traffic than here.

All new Internet connections are fibre and the slowest available speeds are 100 mps for upload and download. Bandwidth is not a problem and service has held up well.

The Spanish may not even be aware of it, as is taken for granted, but there are more fibre connections here than in UK, France and Germany combined with less than a quarter of their combined population.

Financial markets

There is no silver lining to disasters like Covid-19 but it need not be totally destructive. I remain surprised that Spain, like almost the entire world, has kept its financial markets open when we may have been better served if they were closed and the staff sent home. At least then we all might have had the opportunity to realise that financial services don’t create wealth except for their own personnel and ‘rentier’ investors.

Worse, financial services have become a dominant industry in so many countries, Spain included. Money is supposed to be the lubricant of our economies not the central and grossly overpriced service within it.

Ashley Balls lives in Salamanca and is senior partner of LegalBestPractice. Email [email protected]